Cablegate: Time to Consider Tax Treaty with Croatia

VZCZCXYZ0025
PP RUEHWEB

DE RUEHVB #1488 3491344
ZNR UUUUU ZZH
P 151344Z DEC 06
FM AMEMBASSY ZAGREB
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 7054

UNCLAS ZAGREB 001488

SIPDIS

SIPDIS

TREASURY FOR DEPUTY SECRETARY KIMMITT
FROM AMBASSADOR BRADTKE

E.O. 12958: N/A
TAGS: EFIN HR
SUBJECT: TIME TO CONSIDER TAX TREATY WITH CROATIA

Bob,

In March of this year the Government of Croatia made a formal
request to negotiate a tax treaty with the United States. The
question of negotiating a tax treaty with Croatia has come up in the
past and so far been deferred to a time when American economic
interests are greater. I believe that time has now arrived and that
we should make this a priority.

Several things have changed here that merit our attention to this
issue. One of these is the recent purchase of Croatia's largest
pharmaceutical company Pliva by U.S. Barr Laboratories in a deal
valued at 2.5 billion dollars. Barr has already begun to ramp up
its presence here and COO Paul Bisaro has let me know that the
absence of an agreement on double taxation between the U.S. and
Croatia is a problem for the company. The Barr investment is the
largest to date in Croatia and, I believe, will act as a catalyst
for further U.S. investment here. Helping attract investment to
Croatia furthers our foreign policy goals for the wider region, as
we seek to consolidate stability and prosperity in this part of
Europe.

Croatia also has a large diaspora in the United States, many of whom
have been very successful and wish to bring their capital and
know-how back to Croatia. I believe we should welcome this, as it
helps build the economy here and also represents a significant
reservoir of good will towards the United States. Unfortunately,
however, the absence of a tax treaty creates a disincentive to
return and investment. Recently a dual citizen went so far as to
renounce his U.S. citizenship after years of paying taxes to both
governments.

Finally, I believe that moving ahead with this agreement would be a
tangible indication of the improved relations between the U.S. and
Croatia following Prime Minister Sanader's October 17 meeting in
Washington with President Bush. The President's strong statement of
support for Croatian membership in NATO and the EU has been
extremely well received here and has opened the door to new areas of
political and economic cooperation.

I know Croatia is a small country and that Treasury has a large
queue of countries that hope to conclude tax treaties with the
United States. However, I believe that the circumstances here
warrant our giving priority to the Croatian request.

Best regards,

BRADTKE

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